COVID-19: Expenses of Working from Home – The Tax Rules
The coronavirus (COVID-19) ‘lock-down’ has necessitated large swathes of the working population to perform their duties from home. As a result, working-from-home has become the ‘new normal’ for many employees in recent months.
Employers will be considering how best to assist their employees to work most efficiently and effectively from home while the lock-down endures. In doing so, keeping in mind the tax implications of their actions will be beneficial.
An Existing Exemption
Assets (such as laptops, IT equipment and office supplies) provided by an employer to an employee to enable them to work from home benefit from an existing exemption from income tax and National Insurance (NI) contributions. In essence, the provision of the asset is not treated as a taxable benefit in the hands of the employee.
Inevitably, various conditions must be met before the exemption is available. The main condition is that the equipment must be provided for the sole purpose of enabling the employee to perform their duties from home; any private use must be insignificant.
It should also be remembered that the exemption only applies in respect of the provision of assets; it does not apply to the reimbursement of expenses incurred by an employee who has bought the equipment themselves. Therefore, in normal times, the reimbursement is a benefit, subject to both income tax and National Insurance (NI) contributions, in the employee’s hands.
A COVID-19 Extension
However, as a result of the COVID-19 crisis, on 13 May 2020, the government announced that any reimbursement of expenses incurred by an employee when buying home office equipment would also, temporarily, be exempt from income tax and NI contributions.
With effect from 11 June 2020, until the end of the current tax year (on 5 April 2021), the reimbursement of costs incurred by an employee on equipment is exempt from income tax and NI contributions if the equipment:
Would have been exempt if it had been provided directly by the employer (e.g. because the sole purpose of providing the equipment would have enabled the employee to perform their duties from home); and
Is obtained by the employee for the sole purpose of enabling homeworking necessitated by the COVID-19 lock-down.
In addition, the exemption is only available where the employer extends the right to reimbursement for relevant costs to all employees on similar terms.
Naturally this means any employers, choosing to implement a homeworking reimbursement scheme, will need to exercise due care to ensure that different categories of employees are treated equally.
By concession, HM Revenue and Customs (HMRC) has stated that, provided the conditions outlined above are met, any expenses incurred by an employee during the period between 16 March 2020 and 11 June 2020, and reimbursed by the employer, will also be exempt from income tax and NI contributions. As a practical matter, HMRC will not exercise its revenue collection powers in respect of any income tax (or NI contributions) arising in respect of the amounts reimbursed.
Finally, in another welcome clarification, HMRC has also confirmed that, in the absence of any other arrangements, homeworking equipment purchased by employees, the cost of which has been reimbursed by the employer, will be treated as being owned by the employee. This should mean that no further taxable benefit will arise in relation to the use (or transfer) of the asset in the future.